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Citations: (R)682.409
AsOfDate: 12/31/97

Sec. 682.409 Mandatory assignment by guaranty agencies of defaulted loans to the Secretary.

(a)1) If the Secretary determines that action is necessary to protect the Federal fiscal interest, the Secretary will direct a
guaranty agency to promptly assign to the Secretary any loan held by the agency on which the agency has received payment
under Sec. 682.402(d), 682.402(i), or 682.404. An orderly transition from the FFEL program to the Federal Direct Student Loan
(FDSL) Program and the collection of unpaid loans owed by Federal employees by Federal salary offset are, among other
things, deemed to be in the Federal fiscal interest. Unless the Secretary notifies an agency, in writing, that other loans must be
assigned to the Secretary, an agency must assign any loan that meets all of the following criteria as of April 15 of each year:

(i) The unpaid principal balance is at least $100.

(ii) For each of the two fiscal years following the fiscal year in which these regulations are effective, the loan, and any other
loans held by the agency for that borrower, have been held by the agency for at least four years; for any subsequent fiscal year
such loan must have been held by the agency for at least five years.

(iii) A payment has not been received on the loan in the last year.

(iv) A judgment has not been entered on the loan against the borrower.

(2) If the agency fails to meet a fiscal year recovery rate standard under paragraph (a)(2)(ii) of this section for a loan type, and
the Secretary determines that additional assignments are necessary to protect the Federal fiscal interest, the Secretary may
require the agency to assign in addition to those loans described in paragraph (a)(1) of this section, loans in amounts needed to
satisfy the requirements of paragraph (a)(2)(iii) or (a)(3)(i) of this section.

(i) Calculation of fiscal year loan type recovery rate. A fiscal year loan type recovery rate for an agency is determined by dividing
the amount collected on defaulted loans, including collections by Federal Income Tax Refund Offset, for each loan program (i.e.,
the Stafford, PLUS, SLS, and Consolidation loan programs) by the agency for loans of that program (including payments
received by the agency on loans under Sec. 682.401(b)(4) and Sec. 682.409 and the amounts of any loans purchased from the
guaranty agency by an eligible lender) during the most recent fiscal year for which data are available by the total of principal and
interest owed to an agency on defaulted loans for each loan program at the beginning of the same fiscal year, less accounts
permanently assigned to the Secretary through the most recent fiscal year.

(ii) Fiscal year loan type recovery rates standards. (A) If, in each of the two fiscal years following the fiscal year in which these
regulations are effective, the fiscal year loan type recovery rate for a loan program for an agency is below 80 percent of the
average recovery rate of all active guaranty agencies in each of the same two fiscal years for that program type, and the
Secretary determines that additional assignments are necessary to protect the Federal fiscal interest, the Secretary may require
the agency to make additional assignments in accordance with paragraph (a)(2)(iii) of this section.

(B) In any subsequent fiscal year the loan type recovery rate standard for a loan program must be 90 percent of the average
recovery rate of all active guaranty agencies.

(iii) Non-achievement of loan type recovery rate standards. (A) Unless the Secretary determines under paragraph (a)(2)(iv) of this
section that protection of the Federal fiscal interest requires that a lesser amount be assigned, upon notice from the Secretary,
an agency with a fiscal year loan type recovery rate described in paragraph (a)(2)(ii) of this section must promptly assign to the
Secretary a sufficient amount of defaulted loans, in addition to loans to be assigned in accordance with paragraph (a)(1) of this
section, to cause the fiscal year loan type recovery rate of the agency that fiscal year to equal or exceed the average rate of all
agencies described in paragraph (a)(2)(ii) of this section when recalculated to exclude from the denominator of the agency's
fiscal year loan type recovery rate the amount of these additional loans.

(B) The Secretary, in consultation with the guaranty agency, may require the amount of loans to be assigned under paragraph
(a)(2) of this section to include particular categories of loans that share characteristics that make the performance of the agency
fall below the appropriate percentage of the loan type recovery rate as described in paragraph (a)(2)(ii) of this section.

(iv) Calculation of loan type recovery rate standards. The Secretary, within 30 days after the date for submission of the second
quarterly report from all agencies, makes available to all agencies a mid-year report, showing the recovery rate for each agency
and the average recovery rate of all active guaranty agencies for each loan type. In addition, the Secretary, within 120 days after
the beginning of each fiscal year, makes available a final report showing those rates and the average rate for each loan type for
the preceding fiscal year.

(3)(i) Determination that the protection of the Federal fiscal interest requires assignments. Upon petition by an agency submitted
within 45 days of the notice required by paragraph (a)(2)(iii)(A) of this section, the Secretary may determine that protection of the
Federal fiscal interest does not require assignment of all loans described in paragraph (a)(1) of this section or of loans in the full
amount described in paragraph (a)(2)(iii) of this section only after review of the agency's petition. In making this determination,
the Secretary considers all relevant information available to him (including any information and documentation obtained by the
Secretary in reviews of the agency or submitted to the Secretary by the agency) as follows:

(A) For each of the two fiscal years following the fiscal year in which these regulations are effective, the Secretary considers
information presented by an agency with a fiscal year loan type recovery rate above the average rate of all active agencies to
demonstrate that the protection of the Federal fiscal interest will be served if any amounts of loans of the loan type required to
be assigned to the Secretary under paragraph (a)(1) of this section are retained by that agency. For any subsequent fiscal year,
the Secretary considers information presented by an agency with a fiscal year recovery rate 10 percent above the average rate
of all active agencies.

(B) The Secretary considers information presented by an agency that is required to assign loans under paragraph (a)(2) of this
section to demonstrate that the protection of the Federal fiscal interest will be served if the agency demonstrates that its
compliance with Sec. 682.401(b)(4) and Sec. 682.405 has reduced substantially its fiscal year loan type recovery rate or rates or
if the agency is not required to assign amounts of loans that would otherwise have to be assigned.

(C) The information provided by an agency pursuant to paragraphs (a)(3)(i)(A) and (B) of this section may include, but is not
limited to the following:

(1) The fiscal year loan type recovery rate within such school sectors as the Secretary may designate for the agency, and for all
agencies.

(2) The fiscal year loan type recovery rate for loans for the agency and for all agencies categorized by age of the loans as the
Secretary may determine.

(3) The performance of the agency, and all agencies, in default aversion.

(4) The agency's performance on judgment enforcement.

(5) The existence and use of any state or guaranty agency-specific collection tools.

(6) The agency's level of compliance with Secs. 682.409 and 682.410(b)(6).

(7) Other factors that may affect loan repayment such as State or regional unemployment and natural disasters.

(ii) Denial of an agency's petition. If the Secretary does not accept the agency's petition, the Secretary provides, in writing, to the
agency the Secretary's reasons for concluding that the Federal fiscal interest is best protected by requiring the assignment.

(b)(1) A guaranty agency that assigns a defaulted loan to the Secretary under this section thereby releases all rights and title to
that loan. The Secretary does not pay the guaranty agency any compensation for a loan assigned under this section.

(2) The guaranty agency does not share in any amounts received by the Secretary on a loan assigned under this section,
regardless of the reinsurance percentage paid on the loan or the agency's previous collection costs.

(c)(1) A guaranty agency must assign a loan to the Secretary under this section at the time, in the manner, and with the
information and documentation that the Secretary requires. The agency must submit this information and documentation in the
form (including magnetic media) and format specified by the Secretary.

(2) The guaranty agency shall execute an assignment to the United States of America of all right, title, and interest in the
promissory note or judgment evidencing a loan assigned under this section.

(3) If the agency does not provide the required information and documentation in the form and format required by the Secretary,
the Secretary may, at his option--

(i) Allow the agency to revise the agency's submission to include the required information and documentation in the specified
form and format;

(ii) In the case of an improperly formatted computer tape, reformat the tape and assess the cost of the activity against the
agency;

(iii) Reorganize the material submitted and assess the cost of that activity against the agency; or

(iv) Obtain from other agency records and add to the agency's submission any information from the original submission, and
assess the cost of that activity against the agency.

(4) For each loan assigned, the agency shall submit to the Secretary the following documents associated for each loan,
assembled in the order listed below:

(i) The promissory note.

(ii) Any documentation of a judgment entered on the loan.

(iii) A written assignment of the loan or judgment, unless this assignment is affixed to the promissory note.

(iv) The loan application.

(v) A payment history for the loan, as described in Sec. 682.414(a)(1)(ii)(C).

(vi) A collection history for the loan, as described in Sec. 682.414(a)(1)(ii)(D).

(5) The agency may submit certified copies of required documents in lieu of originals if no originals exist.

(6) The Secretary may accept the assignment of a loan without all of the documents listed in paragraph (c)(4) of this section. If
directed to do so, the agency must retain these documents for submission to the Secretary at some future date.

(d)(1) If the Secretary determines that the agency has not submitted a document or record required by paragraph (c) of this
section, and the Secretary decides to allow the agency an additional opportunity to submit the omitted document under
paragraph (c)(3)(i) of this section, the Secretary notifies the agency and provides a reasonable period of time for the agency to
submit the omitted record or document.

(2) If the omitted document is not submitted within the time specified by the Secretary, the Secretary determines whether that
omission impairs the Secretary's ability to collect the loan.

(3) If the Secretary determines that the ability to collect the loan has been impaired under paragraph (d)(2) of this section, the
Secretary assesses the agency the amount paid to the agency under the reinsurance agreement and accrued interest at the rate
applicable to the borrower under Sec. 682.410(b)(3).

(4) The Secretary reassigns to the agency that portion of the loan determined to be unenforceable by the Department.

(Authority: 20 U.S.C. 1078, 1078-1, 1078-2, 1078-3, 1082)

(Approved by the Office of Management and Budget under control number 1840-0538)

Note: (a) and (c)(1) amended and (c)(6) added June 28, 1994, effective July 1, 1995. OMB control number republished June 12,
1995, effective July 1, 1995.